The central bank will probably keep the benchmark one-year
lending rate at 6 percent through the end of 2012, based on
median estimates in a survey conducted between Oct. 18 and Oct.
22, instead of prior forecasts for a quarter percentage-point
reduction. China may lower the reserve ratio by a half point
this year, the survey showed, compared with the full point
projected in September.

Government data showed factory output and retail sales
accelerated in September and Premier Wen Jiabao said the economy
will keep showing “positive changes” even as growth slowed for
a seventh quarter. Any extension of China’s three-month pause
from monetary easing would contrast with stepped-up stimulus in
the U.S. and Japan and interest-rate cuts by South Korea,
Australia and Brazil.

“China’s economic growth is stabilizing and momentum is
picking up as previous easing policy filters through,” said Nie
Wen, a Shanghai-based economist at Huabao Trust Co., who changed
his forecast to no interest-rate cuts from one this year. “This,
coupled with the concerns over a rebound in inflation and
property prices, means the window for cutting interest rates is
closed for the rest of the year.”

‘Mild Rebound’

The third quarter may mark a bottom for the slowdown and the
economy will stage a “mild rebound” in the fourth quarter with
expansion of 7.6 percent to 7.7 percent, Nie said. Inflation may
rise to 2.5 percent by the end of year and as high as 3 percent
in the first quarter of 2013, he said.

The economy expanded 7.4 percent in the July-September
period from a year earlier, while consumer prices rose 1.9
percent last month.

Five of 25 economists surveyed forecast one lending-rate
cut in the fourth quarter, with the rest projecting no change.
In the previous survey conducted in September, 15 out of 25
economists expected at least one reduction in rates.

The People’s Bank of China cut interest rates in June and
July and lowered banks’ reserve requirements three times from
November to May. China has refrained from further easing as
officials prepare for a once-in-a-decade leadership handover
that is set to begin on Nov. 8.

Premier Wen said growth has started to stabilize, the
economic situation in the third quarter was “relatively good”
and the government is confident of achieving full-year targets,
according to an Oct. 17 report by the official Xinhua News
Agency. Wen at the same time said curbs on the property market
have showed “initial effects” and the policy will be
maintained.

Growth Forecasts

The median forecasts in the Bloomberg News survey are for
7.7 percent growth in the fourth quarter and the full year,
unchanged from September’s projection.

The nation will keep taking steps to stabilize growth and
has “relatively large room” to use monetary and fiscal
policies compared with other countries, Yi Gang, deputy central
bank governor, said this month.

The latest set of data shows the economy “may have bottomed
out” and the imperative for an interest-rate cut has weakened,
said Jimmy Zhu, a Singapore-based economist with broker FXPrimus
Ltd.

The central bank will pump temporary cash into markets
instead of lowering the reserve ratio because of concern that
property prices will rebound, said Zhu, who forecasts a ratio
reduction in the first quarter and no rate cut.

Property Prices

China’s September new home prices rose in fewer than half
the cities monitored by the government from a month earlier, a
statistics bureau report showed on Oct. 18, indicating property
curbs are stabilizing the market.

Not everyone is convinced the government will hold off from
easing. Capital Economics Ltd. maintained its September forecast
for a quarter-point interest-rate cut and a 1 point reduction in
the reserve ratio “despite a small rebound” in the latest data,
said Mark Williams, chief Asia economist in London.

“The economy remains relatively weak, the government still
has room for policy action and we still believe they will
continue to loosen policy a little bit further,” Williams said.
Another reserve-ratio cut would help bank lending “remain as
strong as it has been,” he said.

Zhu Haibin, Hong Kong-based chief China economist for
JPMorgan Chase & Co., forecast a half percentage-point cut in
the reserve-requirement ratio this year and no interest-rate
changes, compared with a previous forecast for 1.5 points of
ratio cuts and a quarter-point rate reduction.

With growth momentum improving and inflation picking up
toward the end of the year, “the likelihood of further
interest-rate cuts in the rest of 2012 is diminishing,”
JPMorgan’s Zhu said in an Oct. 18 research note.

“In addition, the busy political agenda going ahead also
implies that the prospect of meaningful monetary policy easing
in the near term becomes more remote,” Zhu wrote.